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Prepare any necessary journal entries for newcastle ltd

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Reference no: EM132843973

Newcastle Ltd. Manufactures and sells home appliances. While preparing the December 31, 2020, financial statements for Newcastle Ltd., the following information was found concerning contingencies and possible adjustments to liabilities. Newcastle Ltd. 2020 financial statements were issued on April 1, 2021.

a. On November 12, 2020, a former employee filed a lawsuit against Newcastle Ltd. alleging age discrimination and asking for damages of $750,000. At December 31, 2020, Newcastle Ltd.'s attorney indicated that the chances of losing the lawsuit was possible but not probable. On March 5, 2021, Newcastle Ltd. agreed to pay the former employee $125,000 in return for withdrawing the lawsuit.

b. Newcastle Ltd. believes there is a likelihood a service provider may claim that it has been undercharged for outsourcing a processing service based on verbal signs of the company's interpretation of a negotiated rate. The service provider has not yet made a claim for extra fees as of April 2021, but Newcastle Ltd. believes it will. Newcastle Ltd.'s accountants and legal counsel feels the charges were acceptable but that if an assessment is made, there is a reasonable possibility that subsequent court action would cause an additional tax liability of $55,000.

c. Newcastle Ltd. grants a two-year warranty for each coffee makers sold. Experience shows that the costs of fulfilling warranties are roughly 2% of sales. During 2020, sales of coffee makers totaled $21,300,000. 2020 expenditures for warranty repair costs were $178,000 related to 2020 sales and $220,000 related to 2019 sales. The January 1, 2020, balance of the warranty liability account was $250,000.

d. Newcastle Ltd. is the plaintiff in a $600,000 lawsuit filed in 2019 against Melborne company for failing to deliver on contracts for produce. The suit is in final appeal. Legal counsel advises that it is probable that Newcastle Ltd. will prevail and will be awarded $300,000 (considered a material amount).

Required:

Problem 1. Determine the appropriate reporting for each situation. Briefly explain your reasoning.

Problem 2. Prepare any necessary journal entries and state whether a disclosure note is needed.

Reference no: EM132843973

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